Schizophrenia is an illness with major public health consequences that is characterized by disturbances in emotion and cognition that often severely impair life function. Despite the central role of emotional disturbances in the phenomenology of schizophrenia, relatively little empirical work has been devoted to the study of emotion or emotion-cognition interactions in this illness. The goal of this project is to begin to elucidate the psychological and neurobiological bases of disturbances in emotional processing and emotion cognition interactions in this debilitating disorder. Building upon our previous work on cognitive deficits in schizophrenia, this proposal will test the following hypotheses: 1) at least a subset of emotional disturbances in schizophrenia, as well as abnormal emotion-cognition interactions, reflect an inability to contextually modulate emotional processing; and 2) difficulties modulating emotional processing in schizophrenia reflect disturbances in the function of dorsolateral prefrontal cortex and hippocampus and their connectivity with other brain regions involved in emotional processing (i.e., amygdala, anterior cingulate, orbital-medial prefrontal cortex). To test these hypotheses we will use state-of-the-art functional neuroimaging, behavioral, and psychophysiological techniques to study a large cohort of individuals with schizophrenia and demographically matched controls. The Specific Aims of this proposal will test hypotheses regarding: 1) conditions in which individuals with schizophrenia should demonstrate intact emotional processing (as indexed by self-report, autonomic responses and brain activity); 2) conditions in which individuals with schizophrenia should demonstrate reduced emotional processing; 3) conditions in which individuals with schizophrenia should demonstrate enhanced emotional processing and disturbed emotion-cognition interactions; and 4) which specific symptoms will and will not be associated with disturbed emotional processing in schizophrenia. The results of these studies have the potential to vastly advance our understanding of emotional processing in schizophrenia and its influence on cognition. Such deficits are core aspects of schizophrenia that lead to functional disability, and thus a better understanding of their nature and causes is central to our attempts to better prevent and treat this illness.